Falling mortgage rates fuel NZ housing recovery in 2025, BNZ economist says
The New Zealand housing market is gradually recovering, with BNZ chief economist Mike Jones (pictured above) forecasting a 7% increase in house prices for 2025 following a flat 2024.
Falling mortgage rates and easing economic pressures are key drivers of this expected rebound.
“We’ve held the same 2025 house price view for some time,” Jones said. “After a flat 2024, we see the cycle turning into the new year, delivering a lift in house prices of around 7% over calendar 2025.”
Investors return as mortgage rates decline
Declining mortgage rates are drawing investors back into the market. Short-term rates have fallen significantly, boosting borrowing capacity and improving cash flow for buyers.
“A good chunk of this extra activity reflects investors being lured back out of hibernation by falling interest rates,” Jones said, adding that bank test rates have decreased from 9% in mid-2024 to around 8% in October.
The restoration of interest deductibility for investors in April next year is also expected to fuel higher investor participation, which could lead to greater demand through early 2025.
Supply balances demand
Despite increased activity, ample housing supply is moderating price pressures. Unsold inventory levels are at a nine-year high, with stock equivalent to 5.5 months of sales.
“There is little pressure on prices to rise in this environment of ample choice and time for buyers,” Jones said. However, he expects inventory to normalize over the next six to 12 months, paving the way for house prices to increase gradually.
Population and construction trends
The housing market has also been shaped by population growth and construction activity.
While migration-driven demand temporarily boosted housing pressures in 2023, migration levels have since eased. Residential construction activity is stabilising, which could help balance housing supply and demand moving forward.
“The net points to an easing of demand pressures from here,” Jones said, predicting a more balanced market as economic cycles stabilize.
Mortgage Rate Outlook
BNZ expects short-term mortgage rates to fall further into 2025, potentially dropping into the 6% range. However, the outlook for longer-term rates is less certain, with inflation risks and global factors introducing uncertainty.
Borrowers may benefit from a mix of shorter and longer-term fixed rates to manage risks in this evolving market.
More on the BNZ Property Pulse here.
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